This article is part of my Q&A series on financial advice. Today’s question is ‘How much does financial advice cost?’
Cost is perhaps the number one consideration when people are looking to find a financial adviser.
Your objective is to grow your savings, and a financial adviser could help you achieve that. However, to get that advice, you’ll be asked to give a sizeable chunk of your savings up.
This feels like a catch-22.
Of course, if financial advice was available for the price of a sandwich, this wouldn’t be a difficult decision. I’m sure that even confident investors would queue up for advice if it only cost the price of a coffee.
Unfortunately, this isn’t the case. Financial advice is very expensive compared to everyday expenditure. Which leads us to the question – just how expensive is financial advice?
How much does a financial adviser cost?
The simple answer is that financial advice can cost anything from £1,000 upwards. The reason I don’t give a cap on that amount is explained later in this article.
This question is similar to asking a hospital how much ‘medical treatment’ costs.
It’s impossible to narrow this down without making some assumptions, as your financial needs could be vastly different to that of the next person.
How much does a financial adviser charge to research an investment?
Let’s start with the cheapest task: How expensive would it be to ask a financial adviser to check out an individual investment that you are about to make?
This could involve:
- Performing online research
- Reviewing the investments’ historic performance
- Looking at the governance and financial stability of the product provider
- Checking that the offering isn’t an investment scam
For any small piece of work with a clearly defined objective will probably be quoted to you as a fixed price.
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If the adviser is willing to take on such a small task from a brand new client, you will probably be quoted somewhere in the region of £250 – £1,000.
Why can’t financial advisers give cheap advice?
You may find that several financial advisers refuse to serve you with such a narrow request altogether.
This is likely because they see the tiny piece of advice as uneconomical and risky for them to give.
The amount of administrative effort that goes into any piece of advice creates a high ‘price floor’ on all work. You effectively pay a few hundred pounds to receive your first word of advice.
When seeking a cost reduction by restricting your ask of an advisor, there’s something else you should know:
Financial advisers will feel uncomfortable providing short, and abstract pieces of advice. This is because:
- Financial advisers have a legal duty to give you appropriate advice but;
- The advice can only be judged as appropriate in the context of your individual circumstances.
To return to the medical metaphor, requesting some investment ‘advice’ without also paying for a 60-minute interview is like expecting a doctor to diagnose you without examining your symptoms.
An adviser simply can’t do their job properly unless they also understand you.
Whether an investment is excellent or not, will completely depend on how it fits into your personal situation. No investment is universally ‘good’, not even investing in shares.
This is why simply offering an adviser £100 for a 30-minute chat is not an option.
How much does a financial adviser charge to design an investment portfolio?
If you want a financial adviser to build a tailored investment portfolio, this is a much larger piece of work.
For an investment portfolio of worth between £50,000 and £1m, you should expect to pay between £1,500 – £10,000 for this service.
There are two ways an adviser could quote you:
- As a fixed fee, e.g. “£2,995 for a basic investment portfolio plan”
- As a percentage of your assets, e.g. “2% of assets under management”
Fixed fees are great if you are a larger investor. The larger your portfolio, the more the cost shrinks in proportion to your assets.
Assets under management % fees work well for modest portfolios, as this helps keep the cost of advice proportionate when your budget is tight.
While the benefits of financial advice can be great, you may undermine your investment goals by spending too much of your portfolio on financial advice. This is after all, an investing cost which will immediately reduce the value of your savings.
You will want to be sure that the value gained from professional advice will outweigh the initial outlay. As a very rough guide, try to keep the cost of financial advice below 5% of your invested sum.